- Sam Tuck, ANZ Bank New Zealand senior FX strategist
New Zealand inflation expectations rose slightly last quarter, albeit remaining below the Reserve Bank of New Zealand's 2% annual inflation target midpoint. Expectations for consumer price gains over the course of next 12 months climbed to 1.46% from 1.32% in the second quarter. At the same time, expectations for inflation in the next 24 months increased to 1.94% from 1.85%. New Zealand's central bank aims to keep inflation within the 1%-3% inflation band. However, cost of living in the country rose a modest 0.3% in the three months through June, according to the latest Statistics New Zealand's report. Inflation has been below the RBNZ's target range since the September-2014 quarter, when CPI climbed 1.0% year-over-year. Weak inflation has been triggered by a strong Kiwi Dollar over the last few years and a steep decrease in global fuel prices since mid-2014. The RBNZ's latest inflation forecasts predict CPI to rise to the target midpoint by around early 2016, supported by the recent weakening of the New Zealand Dollar. One of the RBNZ's key concerns is whether weak inflation will influence inflation expectations, leading to lower wage and price setting behaviour. The RBNZ has tried to underpin inflation and economic growth by cutting interest rates twice since June, and is widely expected to make further cuts to the Official Cash Rate this year. Most economists predict the OCR to be at 2.5% by year-end, down from 3.0% at the moment.
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